The entrepreneur invests some money (capital) in an enterprise. They want to make a profit, and therefore to gain more money in order to enlarge the initial capital. The first action that the entrepreneur must conduct is to buy raw materials (rm), means of production (mp) and to pay someone able to make the production in function (lf). Once a production cycle is completed the magnitude of value of the raw materials are increased by means of the labour force and means of production. The raw materials are “transformed” into commodities Co. Commodities must be sold at a certain price which allows the entrepreneur to run another production cycle and at the same time make some profit out of it.

Let’s have a closer look at the capital (c) invested in this enterprise.

c = cc + cv

c = Capitalcc= constant Capital cv= variable Capital

The constant capital is the one used to pay the means of production (mp) and the raw materials. Its price is regulated by the market; it cannot be changed by the entrepreneur. This is the reason why it is called constant capital. The variable capital is the one used to pay the labour force. It can change (variable) within a certain range determined mainly by the unemployment rate.

Without considering the dynamic fluctuations due to the offer and demand curves; the price of the commodities produced is attributable entirely to the capital to pay back to make another production cycle and the profit that the entrepreneur wish to make.

In theory the entrepreneur could pay the labour force fairly by keeping the prices of the commodities very high and making a tiny profit. But the aim of the capitalistic production is to accumulate more and more profit. The concurrence and the need of selling for profit push the prices of the commodities down. At this point the entrepreneur must decide either keep the prices high and pay fairly the labour force losing their enterprise in few production cycles or reduce the price and extract surplus-value from a part of money due to the labour force. The rate of profit can be found with the following equation:

r = sp / (cc + cv)

where

r = rate of profit sp = surplus-value

Someone could think that another way to make a good profit without touching the variable capital, could be arise arbitrarily the surplus-value. The surplus-value though, comes from the part of money subtracted from the labour force. Therefore, it can be increased only decreasing the variable capital at the same time.

Finally, in order to make profit the entrepreneur cannot pay fairly the labour force.